Climate change is the challenge of our century and the decarbonization of our energy system is crucial to limiting its long term effects on our planet and the wellbeing of future generations. Policy makers can play a critical role in facilitating the transition to cleaner sources of energy, but green policies alone are not enough.

In fact, the European Commission has estimated that over the 2020-2030 period, financing the energy transition in Europe will require annually almost EUR 379 billion of investments in the energy sector. However, the resources currently available to the public sector are vastly insufficient to cover these costs. Accordingly, the financial sector can play a key role in supporting the energy transition, attracting investments toward research and infrastructures development.

Nevertheless, nowadays the involvement of the private sector in financing the energy transition is still limited and the market presents a vast and urgent financial gap between the number of climate-friendly investments currently available and those needed. Within this context, green finance can play an important role in connecting capital to the challenges of climate change, potentially supporting the transition to a low-carbon economy.

While there is no universal definition, ‘green finance’ identifies all those products and services focusing on environmental issues, where the ‘green’ aspect relates to the financed asset, as in the case of investments in clean energy projects. While green finance is still a small portion of the financial market as a whole, one of its products has already established itself as one of the most successful instruments within the market: green bonds.

Much like traditional bonds, green bonds enable the issuer to collect capital in return for a fixed periodic interest and full repayment at maturity, but are designed specifically to raise capital for new or existing green projects and are employed mainly to finance green infrastructure projects requiring a large amount of capital that can grant a stable cash flow in the long run.

The market for green bonds has expanded rapidly: in 2019, green bonds issuance reached USD 257.7bn worldwide, recording a 51% growth in comparison to the previous year. A number of factors can explain their success: on the one hand, they enjoy a ‘tax-exempt’ status and, on the other, they are often employed to finance technologies that are not yet widely employed or fully developed, presenting higher levels of risk and, therefore, higher returns.

While green bonds were initially employed only by governments and development banks, recently corporations have also begun issuing them, expanding and diversifying the market. One of the most prominent examples is Apple, which in 2019 issued a USD 2.2 billion green bond aimed at supporting a number of activities reducing its carbon footprint.

There are a number of benefits associated with the employment of green bonds. Indeed, they already enabled a number of environmentally-friendly projects around the world to collect capital, promoting innovation and technological development in key sectors. Moreover, they have the potential to positively influence the market promoting transparency enhancing disclosure standards and increasing investors sensibility toward environmental issues.

However, while the interest for green bonds is growing rapidly, some critics have also highlighted the size of the green bonds market is still limited, making it hard for investors and policy makers to fairly assess the potential impact of green bonds in supporting the financing of the energy transition. Moreover, the lack of universal and internationally agreed definition of ‘green’ bonds has also been identified as a barrier, increasing the risk of ‘greenwashing’ practices.

Therefore, facilitating access to the resources available in the financial market, green bonds have the potential to play a critical role in financing the energy transition, but the development of clearer rules and of alternatives financial tools are essential to decarbonize the energy system at a large scale.

The potential of green bonds in the energy transition

Love it or loathe it, bitcoin is here to stay. The power-hungry digital currency is going from strength to strength, soaring to a series of all-time highs since the New Year and winning a string of high-profile corporate backers along the way. All this has cemented its position as the world’s leading cryptocurrency by market capitalisation.

Love it or loathe it, bitcoin is here to stay. The power-hungry digital currency is going from strength to strength, soaring to a series of all-time highs since the New Year and 

 a string of high-profile corporate backers along the way. All this has cemented its position as the world’s leading cryptocurrency by market capitalisation.

There are few topics in modern finance as divisive as bitcoin, and its intense energy consumption is a major bone of contention. Every time the price rallies, the debate becomes as heated as the ASIC mining rigs endlessly crunching numbers in far flung corners of the world to keep the bitcoin network running 24/7.

Bitcoin’s electricity consumption will only increase with adoption. A requirement for ever-greater computing power is baked into the system: every four years or so the ‘reward’ for mining bitcoins 

, meaning twice the hashing power is needed to ‘mint’ each new coin.

At the current trajectory, bitcoin’s spiralling energy requirement promises to disrupt upstream energy production in all manner of ways – some of them very positive – and yet the energy industry is barely starting to engage with the technology.

In short, if bitcoin achieves its full potential and replaces fiat currencies around the world – the so-called ‘

’ of the economy that bitcoin acolytes eulogise about – then early adopters will essentially replace central banks at the heart of this new digital financial ecosystem. Energy incumbents are in a privileged position to take a big slice of that market, but short-termism and a lack of vision seem to be standing in the way.

But let’s rewind a moment. Why does bitcoin consume so much power in the first place? (If you’re already 

Bitcoin’s insatiable power demand – equivalent to that of Switzerland, according to 

 – is at the heart of the ‘proof of work’ system of cryptographic consensus that makes the bitcoin network and the transactions it supports secure, resilient and trustless.

In simple terms, bitcoin’s proof of work algorithm requires a market participant to demonstrate that a certain amount of computational effort has been put into producing a block on the bitcoin blockchain.

Bitcoin miners around the world compete to be the first to mine the next block by ‘hashing’, or churning through reams of digits, to earn transaction fees and mint new bitcoins in reward. The greater the miner’s processing power, the greater its chance of winning the number-crunching race. This establishes a direct correlation between a miner’s energy usage and its competitiveness.

The power price is thus a fundamental determinant of the profitability of any mining operation, which is why miners are constantly scouring the world for cheap sources of electricity: electrons generated a long way from demand centres, in an over-supplied market, whose production is subsidised – or a combination of these factors.

China remains the world’s capital of bitcoin mining and hashing power thanks to abundant supplies of subsidised capacity, much of which runs on coal. This severely tarnished bitcoin’s environmental credentials, providing rhetorical ammo to sceptics and environmental campaigners who question the cryptocurrency’s ethical legitimacy.

China’s hegemony in hashing capacity is not total. Small but significant mining operations are also active in the US, Russia, Kazakhstan, Malaysia, Iran, Canada, Germany, Norway, Iceland and Venezuela – all home to sources of cheap electricity, be that from subsidised zero marginal cost hydroelectric dams, nuclear stations, solar PV arrays or wind farms. And sales of ASIC mining equipment are growing fastest outside China.

There are signs that some big energy players are waking up to bitcoin. A significant announcement in early March sent ripples through the cryptocurrency world but went almost unnoticed in mainstream energy press: the launch of 

 by Norwegian industrial energy titan Aker.

 to investing in mining operations that convert stranded or intermittent electricity without stable local demand – wind, solar, hydropower – into “economic assets that can be used anywhere”. In the words of Aker chairman Kjell Inge Røkke:

“Bitcoin is, in our eyes, a load balancing economic battery, and batteries are essential to the energy transition required to reach the targets of the Paris Agreement. Our ambition is to be a valuable partner in new renewable projects.”

So, a company that derives the vast majority of its income from oil exploration and production is to leverage bitcoin as a means of shoring up the economics of intermittent wind and solar projects, perhaps enabling some that would not otherwise get built.

Seetee believes bitcoin’s role as an economic battery can transform wind and solar into baseload power sources by mopping up structural excesses, preventing curtailment and boosting power plant revenues. This is beneficial to grid balancing, as demand-side load shifting can only do so much.

Also, bitcoins mined this way could be reinvested into building new renewable projects, creating a virtuous economic cycle along which electrons are converted into bitcoin and back again. There will probably be technical impediments, but the idea is an interesting one.

 is worth reading in full to understand how a Norwegian entrepreneur who made his fortune in fishing and, later, oil and gas sees bitcoin as the next great business opportunity in the energy transition. The letter is a freewheeling philosophical examination of risk perception, monetary policy, data privacy, the need for businesses to constantly innovate – and the risk of missing out on bitcoin’s enormous upside potential.

Røkke’s visionary leadership is rare among energy industry magnates. Bitcoin mining is only just starting to gain awareness as a highly versatile and profitable means of unlocking stranded energy sources, such as associated gas.

There are a few upstream operators harnessing this waste gas at remote oil fields to power mobile bitcoin mining rigs. A few pioneering US companies specialise in leasing gas-to-power mining units to upstream operators or providing them with turnkey hashing solutions.

One of them – Crusoe Energy Systems – at one time 

partnered with Norwegian state oil company Equinor

 in the Bakken shale oil play in North Dakota. The setup typically involves laying a short pipeline from the oil well to a small onsite gas-to-power generator; power conditioning equipment; and a rig of fan-cooled ASIC mining computers.

Using waste gas for mining allows oil producers on one side of the world to use a worthless stranded energy asset to produce an increasingly valuable digital commodity – in direct competition with others on the network.

Some proponents of gas-fired mining claim that they are displacing coal-fired bitcoin miners in China. Taken at face value, this means bitcoin mining is opening up a new digital frontier in the push to replace coal with cleaner-burning natural gas in China and across much of Asia.

In reality, a gas-fired miner is competing with all the other miners, including those fuelled by genuinely low- or zero-carbon power sources. But let’s hold that thought and explore the significance of (theoretical) coal-to-gas switching via bitcoin mining.

Until now, converting a heating system from coal to gas required natural gas molecules to be physically present in the same location as the coal furnace. In the power sector, the gas molecules must generate electricity onto the same network as a coal-fired power station.

To achieve this physical proximity, the CH4 molecules must be drilled from a hydrocarbons reservoir, gathered, processed and then piped over long distances to the end-use location. For American, Russian or African gas to compete with coal in Asia, it must also be liquefied, loaded, shipped over even longer distances, unloaded, regasified and injected into the local gas network at the consumption end of the chain. At every step, energy is consumed and often some methane leaks out.

Bitcoin is upending the assumption that fuel replacement requires physical proximity. At mobile bitcoin mining rigs at US or 

 oil fields, the gas molecules need travel only a few hundred feet rather than halfway around the world (and thereby avoid the inefficiencies inherent in producing and transporting liquefied natural gas).

Bitcoin won’t be denting LNG trade any time soon, but widespread adoption could help address the problem of routine venting or flaring of gas at conventional oil fields and shale plays. This practice persists because infrastructure does not exist to pipe the gas to market, or there is no spare capacity on the pipeline at a price that makes it worthwhile to do so.

If low wholesale gas prices render solutions to these obstacles uneconomic, the status quo prevails: methane is released unabated into the atmosphere, it is re-injected to the well to pump more oil, or it is burned at flare stacks that light up the prairie.

The American shale patch has earned an unwelcome accolade for wasting obscene volumes of methane during the hydraulic fracturing of oil-rich shale deposits. The shale boom has helped put US gas flaring on a par with that of Russia, Iran and Iraq, the world’s worst offenders, and beyond that of Venezuela, Algeria and Nigeria – other major gas flaring culprits, according to 

As the climate debate intensifies, investors are more closely scrutinising the environmental metrics of upstream operators. Associated gas is becoming a reputational liability for oil producers that have grown accustomed to freely venting and flaring endless volumes of the climate-heating fuel. It could soon become an economic liability too, if regulators finally come good on promises to crack down on routine flaring.

For this reason, oil producers with too much gas on their hands can make it available for bitcoin hashing at a negligible cost to the mobile mining outfits – giving them a competitive edge over rivals that must pay a generator directly, or draw power from the grid.

The addition of associated gas to the bitcoin miners’ global fuel mix is neither here nor there for the mining ecosystem; it makes no difference whether a coin was minted using electricity derived from hydro, wind or gas-fired power. But it could prove transformative for those energy companies sitting on stranded gas resources: technically insolvent US shale players, chastened independents, cash-strapped energy majors and Covid-weary national oil companies.

As the bitcoin price surged – from highs of $1,000 per coin in 2013 to $20,000 in 2017, and then on to ~$60,000 today – the profitability of mining rose in tandem. The most bullish forecasters now foresee bitcoin hitting six figures as soon as this year, and $1 million before mid-decade. It might happen later than that, but the timing matters not: current monetary policy is debasing fiat currencies, pulling the inflection point towards a hyperbitcoinised economy steadily closer.

The conversion of stranded gas into bitcoins thus makes a lot of economic sense. One is a carbon-emitting fossil commodity with zero wellhead value that, even when it finds a route to market, is on a path of secular (albeit gradual) decline. The other is a digital commodity that, bitcoiners say, could give rise to an entirely new decentralised global monetary system.

Putting a stranded fossil energy resource to economic use improves the efficiency and profitability of upstream operations, while ridding oneself of a liability and – depending on your worldview – taking a punt on a speculative digital asset class, or buying a stake in the new world economic order.

While mobile gas-fired miners are niche third party enterprises, their founders openly expect oil companies to integrate bitcoin mining into their upstream operations as it gains acceptance. If they do, the carrying value of their 2P gas reserves could be expressed directly in bitcoin, enabling them to hold the currency as a reserve in their corporate treasuries and diversify their balance sheets (as 

As central banks print more money, bitcoin is 

 by design. Converting stranded gas resources into a large cryptocurrency portfolio could convert today’s cash-constrained energy incumbents into the (decentralised) banks and money lenders of tomorrow.

The best moment to invest in bitcoin was five or ten years ago, but the size of the market opportunity is still considerable. An estimated 328,500 bitcoins will be 

 out to 2024. With the price hovering just below $60,000 per coin, that’s nearly $20 billion in wealth creation every 12 months.

While that’s barely 1% of the ~$2 trillion value of today’s oil market, the figure will rise as the bitcoin price appreciates. If bitcoin hits $1 million dollars before mid-decade, the value of newly minted coins in 2024 alone would be $328.5 billion – while the entire market capitalisation of all the bitcoins in circulation would be closer to $19.6 

Unlocking stranded energy resources to take a piece of that market presents an alluring proposition and a strategic hedge. For petrostates in particular, it holds the prospect of preserving geopolitical clout that would otherwise wane with the demise of the petrodollar from its status as the world’s reserve currency.

Unfortunately, burning waste gas to power ASIC mining rigs does nothing to prevent emissions of carbon dioxide (although it does reduce venting of methane, a more potent climate-heating gas over shorter timeframes). This exposes investments in gas-fired bitcoin mining to the same climate risks as any other gas-fuelled operation. It also adds a further economic incentive to drill sooner rather than later – before regulators clamp down on externalities such as carbon emissions.

Using natural gas for mining has already divided bitcoiners, with some concerned about the 

 of using an ‘unsound’ carbon-emitting fuel source to create what they deem to be ‘sound money’. And the claim that US gas-fired mining displaces coal-fired Chinese rivals does not stand up to scrutiny either.

 that Chinese bitcoin miners flock to regions with abundant hydro-electric power during the rainy season when dams fill to the brim, or where excess wind power is routinely curtailed. With companies such as Seetee investing in mining ventures that bolster the economics of renewable power projects, bitcoin is another theatre in which the coal/gas/renewable/nuclear battle for market share will play out.

As such, carbon pricing and tightening of environmental regulations will progressively incentivise cleaner mining operations and push ‘dirty operators’ off the bitcoin network first – in much the same way that UK and European carbon pricing is pushing coal off the grid, with gas-fired power next in line.

Oil producers will have to move fast if they want to seize the bitcoin opportunity, but many have other priorities. Some mobile gas-fired miners 

 that few are willing or able to partner with them, due to lack of understanding or awareness of bitcoin, fear of shareholder reprisal, technical constraints or a steadfast fixation on boosting free cashflow while the oil price remains buoyant.

A short-term obsession with drilling new wells at any cost in the misplaced belief that ever-greater production volumes would increase profitability put many shale oil operators in their current predicament. (Equinor is a case in point: it sold its Bakken acreage in February after a decade of eye-watering losses rooted in 

. The partnership with Crusoe probably ended with that asset disposal.)

The irony is that the same short-termism is blinding these companies to a fascinating opportunity to play a role forging the new world monetary order – or at least make a few precious bucks on gas they can’t sell

Brave new world: Bitcoin opens digital frontier in global clean energy transition

Biofuels have been around for quite some time. Driven by the oil shocks in the 70’s and questions around energy security, biofuels attracted quite some interest but also significant investment.

Currently there are three types of biofuels produced at commercial scale:

Ethanol: Brazil’s government in 1973 started an ambitious ethanol production program to potentially replace gasoline in the transport sector with the sugarcane-based fuel

Biodiesel: Biodiesel was made commercially available in the 1990’s starting from the US due to advances in technology, and Europe followed shortly

Hydrotreated Vegetable Oil (HVO) or renewable diesel which is currently the smallest in terms of production but has the greatest growth potential

Well, the similarities are mostly around feedstock required. Ethanol is by majority produced by sugarcane while biodiesel is mostly sourced from processing vegetable oils and fats. HVO is more flexible in the sense that it can be produced by both vegetable oils, fats but also waste oils such as used cooking oil. Therefore, they can all be considered “renewable” fuels.

All of them are also considered to have a lower emissions profile compared to their fossil-based equivalent fuels. Although, the debate is still ongoing regarding the environmental benefits of ethanol.

Ethanol and biodiesel have significant disadvantages when compared to HVO. Firstly, they can only be used blended with conventional fossil fuels in different quantities. Ethanol can be blended with gasoline in a maximum ratio of 85:15 while most commonly it is around 20:80. On the other hand, biodiesel is thought to be able to mix with conventional diesel at a maximum ratio of 30:70. Currently, the most common biodiesel to diesel blending ratio is 10:90.

Secondly, ethanol and biodiesel directly compete with other industries for feedstock and most importantly with the food industry, compromising in a degree food security. China’s recent case of reversing their biodiesel blending mandate is a prime example of food security concerns.

HVO on the other hand is a “drop-in” fuel, meaning it has the potential to replace conventional diesel completely. And this is without any further modification in the diesel engines or any danger for engine degradation. Its main advantage is that compared to simple biodiesel it contains no oxygen making it easier to store, transport and ultimately combust in conventional diesel engines. And from an energy content perspective, it is actually more efficient than diesel.

From a technology perspective, HVO is more capital intensive as the technology required resembles more that of the conventional oil refineries while ethanol and biodiesel are more easily produced.

Europe is the frontrunner in HVO production with significant capacities in Finland, Netherlands and Italy. Neste, a Finish refiner, has been developing HVO plants since the early 2000’s with great success. Eni has also converted two of its refineries into HVO refineries due to the lack of profitability, while Total has also recently started HVO production in its La Mede refinery in France.

However, growth in HVO production will come from the US, driven by significant policy incentives that reward HVO producers with tax credits – both at a Federal level and also at the state level.

More than 20 projects have been announced in the United States either as greenfield or conventional refinery conversion. Another benefit of HVO which can lead to significant capital costs savings. Refineries that currently don’t generate any profits can be switched to HVO with simple retrofits offering a new earnings stream for the badly hit refining industry.

Investors will also be happy as HVO has the potential to completely eradicate emissions related with diesel engines, ticking the ESG investing boxes.

Lastly, HVO answers two key questions that remain unanswered regarding energy transition: heavy duty vehicles and aviation decarbonization can be achieved with the usage of HVO. An HVO derivative bio-jet is currently at an early stage but developments are expected in that field before 2030.

Despite its potential to be sourced by processing of waste oil, these waste oils are not currently collected in a large-scale. In Europe only 5% of the used cooked oil is collected and converted into HVO. Supply chains and logistics are therefore imposing a barrier in large scale HVO deployment.

Secondly, the spur in the US HVO investment is driven by policies that currently favor biofuels by generating tax credits for every gallon of biofuel produced. With uncertainty post 2022 regarding the renewal of policies, the commerciality of these plants will come into question.

Lastly, since HVO is a one-to-one alternative for diesel it is understood that oil price swings affect the price of this biofuel as well with recent cases of used cooking oil being more expensive than diesel fuel.

With technology advancements and supply chain for feedstock maturing, we do think that HVO has the potential to be a game changer in the transport industry but requires various elements to align first.

Advanced biofuels: A silver bullet for refiners?

It’s all about hydrogen in today’s issue – the fuel of the future, or fanciful folly depending on your perspective. Sustainability consultancy E3G released a report this week that seeks to find a green-tinted middle ground in the polarised debate around the efficacy of switching parts of the UK economy to run on hydrogen. In the hydrogen debate, detractors decry hydrogen’s huge inefficiencies and practical challenges, while supporters see it as nothing short of vital for achieving ‘net zero’.

It’s all about hydrogen in today’s issue – the fuel of the future, or fanciful folly depending on your perspective. Sustainability consultancy E3G 

 this week that seeks to find a green-tinted middle ground in the polarised debate around the efficacy of switching parts of the UK economy to run on hydrogen.

In the hydrogen debate, detractors decry hydrogen’s huge inefficiencies and practical challenges, while supporters see it as nothing short of vital for achieving ‘net zero’.

The E3G report seeks to cut through those binary positions to identify realistic use cases while warning against pursuing dead-end options being pushed by vested interests. It is worth reading in full, but here is my pick of the key recommendations:

the UK should focus exclusively on green hydrogen

 (from renewables) rather than taking a twin-track approach that includes the blue variety (derived from fossil gas)

This requires parallel rapid growth in offshore wind

, electrification, efficiency and the circular economy

In end-use applications, UK should focus on 

high temperature heat in industry, shipping and aviation, and long-duration electricity storage —

Hydrogen pipelines should be built around secure demand and supply

, not around the question of how existing gas assets can best be kept functioning

This last point is crucial. The pro-hydrogen narrative is heavily influenced by the natural gas industry. Pipeline owners and regulated gas network operators are keen to maintain utilisation rates and avoid writing down the value of their assets.

Regulators almost certainly won’t let them jack up per-unit rates to compensate for fewer volumes flowing through their assets if net zero squeezed demand — so hydrogen ‘blending’ is a great way to shield gas industry incumbents from the economic threat posed by decarbonisation.

E3G places emphasis on identifying areas where hydrogen offers the best ‘value-add’ — and blending is not one of them. Mixing H2 with pipeline gas will be “challenging” over a certain share due to infrastructure constraints and the potential that “the quantities of green hydrogen that would be required never emerge”, the report states.

Similarly, the blue-versus-green debate is becoming a flashpoint in the fossil-versus-renewables cold war. Upstream operators need to convince capital markets that their prized 2P resources will not be stranded by the net zero push, and subsidised blue hydrogen provides the perfect cover.

North Sea oil and gas lobbyists want to convince government that ‘blue is cheaper than green’ in a bid to secure subsidies for steam methane reformation (SMR) with carbon capture, to convert CH4 into ‘low carbon’ H2. That phrase has caught on, with the UK government conflating blue and green under the misleading umbrella of ‘clean’ hydrogen.

None of which is to say hydrogen has no future whatsoever in the UK, or anywhere else for that matter. Using green hydrogen to replace dirty ‘grey’ H2 (made from gas, without carbon capture) in refineries is a good place to start attacking industrial emissions.

Wider industrial uptake of green hydrogen could cluster around centres of production (e.g. coastal sites near offshore wind farms). Since transporting H2 over long distances is problematic and inefficient, hydrogen clusters could make a lot of sense. But beyond that, who knows? Clusters might become the high water mark of hydrogen adoption.

Cue yesterday’s big hydrogen ‘news’: Danish wind developer Ørsted’s 

, an ambitious vision to roll out 2 GW of new offshore wind capacity in the Danish North Sea powering a 1 GW electrolyser by 2030. This, in turn, would feed a Dutch-Flemish North Sea industrial port cluster to enable “sustainably-produced steel, ammonia, ethylene, and fuels in the future”.

Big industrials in the area – ArcelorMittal, Yara, Dow Benelux, and Zeeland Refinery – currently use 580,000 tonnes per year of grey hydrogen. The electrolyser would initially replace around 20% of that, growing to 1 million tonnes by 2050 – equivalent to roughly 10 GW of electrolysis, according to Ørsted.

There’s a long way to go, however. Ørsted and partners need to conduct a feasibility study and then pow-wow with regional authorities over “the framework and policies needed to support” such a development – i.e. they’ll lobby for subsidies to make it a reality. Nobody will be cutting a big cheque any time soon to bankroll construction of SeaH2Land (or any other proposed hydrogen cluster).

who ultimately pays to build out grand visions of clean steel and zero-carbon cement production?

 These are among the hardest segments of the economy to decarbonise, yet solutions such as SeaH2Land won’t make economic sense without a triple-figure carbon price — which is not likely this side of 2030. Maybe that’s where targeted support, for example in the form of 

If the economics can be cracked, green hydrogen uptake could unlock some exciting possibilities. Next-generation floating offshore wind turbines, the next frontier in offshore wind development, 

: freed from costly and complex long distance electrical connections to shore, floating offshore wind farms could be developed exclusively for 

 hydrogen production, with H2 shipped to coastal demand centres (perhaps in the form of ammonia).

Financing a dedicated offshore wind-powered hydrogen production facility would require cast-iron contractual certainty that a credit-worthy offtaker would absorb the required volumes, and at the right price. Only then can projects leverage debt finance to cover up-front construction costs.

In short, green hydrogen proponents will need to de-risk the entire value chain and apportion risk carefully among industry participants before big money lenders will make a play. This is exactly what the liquefied natural gas industry strived over many decades to achieve; LNG is only now on the cusp of becoming a mature commodity characterised by trade transparency and deep liquidity.

Producing and shipping LNG consumes energy, but the losses are nothing compared with those inherent in hydrogen. All things considered, the path to commercialisation of H2 will probably be very long, slow and strewn with obstacles. All the more reason to follow E3G’s advice and focus resources on those applications where hydrogen “adds the greatest value for climate, jobs, and a strong economic recovery”.

Stuck in a rut: hydrogen caught in polarised ‘hope versus hype’ debate

If there is one thing we can learn from the pandemic and the disruption it caused around the world, this must be that technology will play a central role in our lives. Indeed, the rapid development of digital technologies took by storm several sectors, including the energy one. While technologies like artificial intelligence (AI) and big data promise to make the green transition faster, their introduction is likely to cause profound changes to the energy system and its equilibrium.

The introduction of advanced technologies such as big data, AI and 5G promise to increase the efficiency of clean energy technologies and thereby boost their deployment.

AI is any machine able to learn and respond to different situations. For example, it could be employed to develop innovative materials that can decrease embedded emissions, toxicity and costs of green technologies such as PV panels and wind turbines

. In addition, digital technologies enable the integration of more renewable energy plants into the grid.

More importantly, AI can be used to make PV plants smarter and more efficient, helping to address failures quickly and enabling better energy storage decisions. To make this possible, Huawei created FusionSolar 6.0+ Utility Smart PV Management System, a smart system that integrates AI with more sophisticated algorithms, enables the collection of real-time data on production, facilitating the management of entire PV plants. These data could even be used for maintenance operations to be carried out through drones

Accordingly, artificial intelligence, big data and 5G technologies could enable the collection of key data that enhance energy forecasting and support the flexibility of the energy grid.

Moreover, it could also improve customer experience and increase the flexibility of energy demand profiles through a system of incentives. A handful of innovative utilities around the world have already developed apps that allow their customers to track the price of energy during the day, incentivizing them to use electricity during non-peak hours.

Apps also exist to track the carbon intensity of the grid to allow consumers to turn on power-hungry devices when the cleanest sources are generating the most (although much greater integration with smart appliances is needed to automate such decisions).

Challenges for the Energy System - Cyber Security

However, the introduction of smart technologies comes with its own challenges. Every time you add software to existing infrastructure, you are increasing its efficiency but also making it hackable

. Major data breaches have already been committed at the expense of other key infrastructures in several countries and some even involved key institutional players, such as the hack on the US energy department in December 2020 

Safety and security will become essential requirements in the employment of these technologies moving forward because the question that should be answered is not if these breaches might happen, but when and how they can be prevented.

The Role of Policymakers - The Role of the European Union

The successful employment of these technologies not only depends on technological development and finance, but also on the creation of policies that support the digitalization of the energy sector. In fact, digitalization of energy infrastructure is crucial if countries want to achieve targets set by the Paris Agreement. so policymakers have an important role to play in ensuring the creation of a regulatory framework that facilitates this transition.

The European Union is positioning itself as an international leader in the transition to clean energy and is taking active actions to support the digitalization of the sector. Accordingly, in 2020 it published a roadmap for the digital transformation of the energy sector in Europe. The document recognizes the need to digitalise an increasingly decentralized energy system and present a list of short-term actions to accelerate their deployment. Among these actions, one of the priorities is to build trust on digital tools among developers and final customers, addressing their concerns in relation to data protection and security

While the document represents a step in the right direction in defining a European strategy to decarbonize and digitalize the energy sector, most critics expect further and bolder steps in the future to back commitments with actions.


How AI and Robots are Transforming Solar Energy | Analytics Insight

How AI Is Transforming The Solar Energy Industry? (solarquarter.com)


Cyber attacks: it is not a matter of if but when, says New Orleans’ CIO - YouTube


Assessment and roadmap for digital transformation of the energy sector towards an innovative internal energy market - Publications Office of the EU (europa.eu)

The Energy Transition and the Digitalization of the Energy System: Challenges and Opportunities

Of course, the energy industry could not have been left unaffected from the shock that COVID-19 had on the world. It was, in fact, an industry badly hit as it is estimated that world energy consumption fell by 5% compared to 2020 (IEA WEO 2020). To put that into perspective, the world's primary energy consumption has grown about 2% every year since 2008 (BP Statistical review of the World Energy 2020).

Unprecedented is a term that has been among the most used words for the year that we have just left behind. Surely a pandemic is an occurrence that has happened before but it has been probably the largest shock in modern times with far-reaching implications on every aspect of society.

Of course, the energy industry could not have been left unaffected from the shock that COVID-19 had on the world. It was, in fact, an industry badly hit as it is estimated that world energy consumption fell by 5% compared to 2020 (

). To put that into perspective, the world's primary energy consumption has grown about 2% every year since 2008 (

BP Statistical review of the World Energy 2020

Consequences have been dire for energy producers and this article aims to highlight the key events and developments in 2020 that have the potential to shape the energy industry of the future.

In a year like this with energy consumption declining and nationwide lockdowns, oil price has seen huge declines, from a ~50$ per barrel WTI in January 2020 to a -37$ per barrel on April 20, 2020. A combination of weak demand, WTI fundamentals (landlocked with limited physical storage) and trading contracts reaching settlement dates have pushed oil price to negative levels for the first time in history.

In 2020, 5 out of the 7 oil majors have declared their ambitions to become Net-Zero energy companies by 2020. Shell, BP, Eni, Equinor and Total have all revised their long-term strategic agendas to transition from Integrated Oil Companies to more wide spectrum energy companies or as BP calls it: “Integrated Energy Companies”. And to no one’s surprise as these companies have already been active into the New Energies space driving towards more sustainable business models. The real surprise here though is that even traditional oil heavyweights like ConocoPhillips and Occidental have also joined the Net-Zero club, though without giving more details about their action plans.

3. Oil dividends are not to be taken for granted

As the COVID-19 impacts were starting to be felt in oil majors' income statements, companies were looking everywhere to find cash to preserve liquidity. Project cancellations and capital expenditures cuts were the first to be announced but 4 out of 7 oil majors also proceeded to dividend cuts with Shell, BP, Eni and Equinor all slashing their quarterly dividends – some of them for the first time in their history.

4. OPEC+ has opened more room for negotiation than ever

In a market shocked by negative oil prices, OPEC+ acted swiftly to take significant production off the market in an attempt to rebalance oil’s fundamentals. This however, has always been the case with OPEC+ in all shorts of market swings. The difference this time was that the oil exporting countries’ organization sought the help of the G20 as, “as noted in thousands of articles”, this time the price shock was unprecedented. United States, Canada and Norway were among the countries that agreed to production cuts to help rebalance the oil markets and send the oil price back to more reasonable levels.

Last year may have initiated a paradigm shift in the way energy companies look at the future. Consensus among oil companies is that we may have reached peak oil – the year of peak demand - while others like OPEC and IEA believe that oil demand will recover to 2019 levels within the next 2-3 years.

Either way, oil companies – IOCs and NOCs - are planning differently for the future. We expect to see more and more leaning towards ESG from pure oil companies and moves into new energies to continue attracting investors.

We also expect more consolidation - fewer and larger oil companies. Already, 2020 has seen some mega merger announcements of large-cap independent oil producers, something that was seen in the 80’s after a different kind of oil price shock.

For national oil companies the way forward looks bumpy. They cannot just leave their nation’s wealth in the ground. What we expect them to do is move towards improving public perception of their operations. Petronas was the first NOC to announce that it is considering Net-Zero while even Saudi Aramco has openly talked about interest in decreasing carbon content in the products they sell.

Things the energy industry taught us in 2020 and what to expect in the future

It was in February 2014, when most of the key gas pricing agencies reported a record in the spot price (price for immediate delivery) of LNG cargoes in Japan-Korea. Driven by the Fukushima crisis and the impairment of Japan’s nuclear plants gas, LNG has gained significant share in the country’s power generation mix being a relatively environmental-friendly fossil fuel. The sport price in that month? The more than extraordinary $20 per Mmbtu!

That seemed to be the silver bullet for many gas producers and LNG import operators. A commodity that is relatively cheap to buy or produce could be liquefied and sold into distant markets for a price 5 to 6 times more than its cost.

Reports on global LNG supply balances showed a potential supply gap after 2020 and added to the rush to expand LNG liquefaction capacities but also to sanction more gas projects with the potential to build LNG plants linked to them - a rush that resembled the gold rush 1800 century.

Gas was also favorable compared to oil among investors and shareholders. It has lower emissions intensity compared to oil and it would be a good first step among the oil dinosaurs to start their diversification efforts towards a greener resource type.

Everything seemed in line for a gas revolution. Huge projects were sanctioned in Australia (amid equivalent huge project delays and cost overruns). Qatar the world leader in LNG expanded its production capacity and the US started to transform its LNG import terminals to liquefaction/export facilities. And then reality struck…

In 2016, as projects were ramping-up and winter in Asia was milder than expected LNG prices dropped to $6-7 per mmbtu. The market was not able to absorb the gas, and coal was cheaper to burn leading to the price decline.

And that brings us to the new reality of 2020 and the COVID era

Remember that $20 per Mmbtu spot price in 2014? Divide that by 10 and you will get the same price marker for April-May 2020. Of course, the weather in spring-time is milder than February but if we look at the April-May 2016 prices they are still however at the $16-18 range. This signaled a fundamental change in pricing dynamics…

And this becomes more evident if we look at project cancellations and deferrals announced by oil & gas companies. Shell has walked out from Lake Charles LNG project due to weak market conditions. ExxonMobil is deferring its Mozambique LNG project for 2021 and the same stands for the Browse, Scarborough and Pluto-3 LNG projects in Australia.

Many more gas projects linked to LNG plants have also been deferred or cancelled completely. The preference showed by operators in cancelling these types of projects is driven by two factors. Firstly, LNG projects are capital intensive and more prone to overruns and delays since they are more technically complex compared to upstream projects. Secondly, oil remains much more profitable.

In a world were oil companies are looking to save even the last dollar to remain afloat in the COVID flood, it is the gas projects that are offloaded first.

Even the National Oil Companies that were looking to increase their domestic gas capacities and possibly expand into gas exports are having second thoughts amid fiscal budget pressures.

Aramco has delayed its giant Jafurah shale gas development, while ADNOC has cancelled contracts for its sour gas fields. Petronas with SK 408 and many more have done the same.

This article is meant to prove a reminder that any energy transition - even among different fossil fuels - is costly. Gas is cleaner than oil and has the potential to transform economies with its increased efficiency, but oil still remains on top in the oil companies’ agendas.

Whatever happened to the rush for gas?

Unprecedented times as well for the energy industry overall. Rapid decline in energy demand, negative oil prices, refinery idled or mothballed, and LNG carriers used as storage to dampen the loss from destroyed gas demand.

The year 2020 is probably where the word “unprecedented” has been used the most. The COVID-19 pandemic indeed brought unprecedented conditions upon the world, with global economy well into recession and forecasts now looking gloomy.

The toll has been heavy in the stock prices of Major oil companies. Year-on-year the market caps of Exxon, Chevron, Total, Shell and BP are down by 50%. This certainly is unprecedented value destruction.

The same stands for the Large-caps of the industry. Companies from the group of ConocoPhillips, EOG, Pioneer and Occidental have also lost on average 47% of their market cap year-on-year.

Lastly the small-caps, or else the pure-play E&Ps, have also lost 58% on average year-on-year from a group of 50 companies.

The verdict: In this unprecedented crisis everyone loses

Talks about peak oil demand already reached, surging COVID-19 cases globally and fears of supply glut with Libya restarting its operations have made the road to recovery even harder for oil companies.

We believe there is a silver lining here. Looking at the same three peer groups (Majors, Large-caps and Small-caps) it appears that the road to recovery might be bumpy – but at least there is one!

Large-caps on average have recorded a growth in market cap of 36% on average

Market has also shown some appreciation to Small-caps with average market cap growth of 31% for the groups

Oil Majors have recorded market cap reduction of 14% on average

So, does the market favor upstream pure plays compared to Oil Majors?

Possibly. Turning around a smaller organization with only one or two key business segments sounds like an easier job to do compared to a giant integrated oil company. Despite the lack of access to cheap finance, the Large and Small-caps can adapt more easily to the new demand patterns either by consolidating and merging with similar companies, or by taking deeper cuts in their budgets and headcounts.

Not the same stands for oil Majors though. Despite the deep cuts already announced (20-25% Capex and 10-15% Opex cuts), there isn’t much left to squeeze out.

Refining and Chemicals operations where Shell and Exxon are among the global leaders require heavy manning levels due to the complexity of the processes - raising the companies’ headcount by significant numbers.

However, they offer the benefit of vertical integration from oil & gas production to refined products and petrochemicals production giving these companies the benefit of synergies, optimization and portfolio optionality.

It is therefore easy to understand that these are areas that the oil Majors have invested a lot of capital and time in to develop and are likely to remain in these companies’ portfolios.

An exception is BP (although much smaller in scale compared to Exxon and Shell), where they have already divested their Petrochemicals arms to INEOS in an attempt to reduce their debt and overall headcount and transform into a leaner organization.

This crisis is like a water tank with multiple holes

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